Readers' comments

As predicted, the Indian government has started its divestment drive. The govt. is behaving like the corrupt and bankrupt zamindar in a Tagore novel, who has to go to the old r a n d i (prostitute) to satisfy his private needs because the younger fresher one is too expensive. As outlined earlier, this is part of its plan. It is talking up the markets, announcing reforms that can never be developed on, and then selling its paper. It will recover Rs 40000 crores from divestment and Rs. 30000 crores from spectrum auctions. They say, the money will be applied towards the deficit. In reality it will be used to fund further sops and giveaways in the next budget. The deficit will be kept at 6 % of GDP and they will take their chances with the rating agencies like S and P later. SELL ALL STOCK. (Longer post below)

India. Reforms. Really?

Much has been made of the “burst of reforms” unleashed by Finance Minister Chidambaram in recent weeks. The stock market has rallied and animal spirits it seems are back. Everybody’s babbling about how the UPA, after eight years in power, has found religion ie “reforms”.

The market is now at 21 times price to earnings (trailing twelve month free float adjusted as per the National Stock Exchange). Once more the mood swings violently. More interestingly the India VIX , the fear index is at 3 year lows of 15. This is usually an indicator of complacency, and historically such lows have signified a massive sell off. The combination of the stretched price to earnings and the VIX means the market is ripe for a big sell off. My two bit as an Ivy educated fund manager in Bombay who has worked internationally on some of the world’s major structural adjustment and economic reform programs.

In reality, the reforms amount to bureaucratic tinkerings with percentages – of a sort that only tax mavens and accountants can comprehend. Witholding taxes go down by a percentage point or two. Now an attempt's been made to increase the percentages foreigners can hold in insurance and pensions. (This last will never pass through Parliament given the unanimous opposition to it). Blah Blah Blah.

The government had no choice but to unleash this wave of tinkering and call it “reform”. It is trying to keep the capital markets buoyant because it needs to sell or “chipkao” (i.e. stick, as we say in the business) close to Rs 40,000 crores worth of equity. This with spectrum auctions, hopefully plug the budget deficit a little by March. More crucially, it will also free up resources for massive election giveaways in next March’s budget. This is especially needed if the Food Security Bill –Madame Sonia’s chosen strategy for reelection – is to be passed.

Real reforms for India will not happen for a long time. These include financial sector reform, and privatization of the banking system. Bankruptcy and exit laws will have to be introduced. Labour market liberalization and the freedom to hire and fire labour will have to be allowed.

The collapsed state of Indian cities will have to be addressed by building 30 to 40 cities to accommodate massive rural urban migration. Land acquisition which is impossible now will have to be addressed. This list does not even include the sector changes required in real estate and infrastructure and sugar, and so on and so on. None of this is happening ever, it seems.

Everybody’s babbling in the media about how crucial the February budget is going to be for the UPA because it will be packed with big ticket sops like the Food Security Bill. Remember game theory however. It is crucial to take your opponent’s reaction into account. The Opposition also knows that the budget will be crucial to the UPA’s reelection chances ! Why then will they allow the UPA to present the budget at all. Especially when they have the numbers and the government is already on life support and in a minority. !!!

The government therefore, will, in all likelihood, fall in November-December, during the winter session of Parliament. Elections will take place in March-April as India needs the school system for a general election. This will allow the Opposition the chance to deny the government’s attempt to pass a budget full of sops and giveaways. The February budget will consequently be a vote on account. This scenario will suit all parties except the Congress and hence it will happen.

Is the market discounting the possibility that in a few weeks, all these guys PC etc. etc. will be gone ? Looking at the way its going up, I think not.

The logical conclusion also is that this is the high point of the markets move this year. India has gone from having the most incompetent FM (Pranab) to the most cunning FM (Chidambaram). The later is deliberately doing all he can to talk up markets to implement his plan. There is little need to oblige him and his plans of using the stock market as a financing vehicle, by buying high and losing one’s hard earned capital.

Maharashtra as a state in independent India completed 50 years of its existence in May 2010.

This is what Kumar Ketkar the then editor of a Marathi daily Loksatta had to say:

"What Maharashtra has done in the past 50 years is total ruin of Mumbai. I have, despite being a Marathi, no love at all… and no pride that we are celebrating our 50th anniversary. In fact, I have condemnation, and this is not political condemnation, it is my personal feeling because I was born before Maharashtra was formed. I have been a Mumbaikar all my life. The virtue, dynamism and vibrancy of life have declined every day. And in my lifetime it will not improve. As a journalist I have travelled in every taluka and all I can say is ‘how pathetic Maharashtra is’. There are 36,000 villages where tankers deliver water. In Mumbai, 8 per cent of the land is occupied by nearly 65 per cent of the people and 92 per cent is occupied by 35 per cent of the people. Dharavi, Govandi, Mankhurd [intense pockets of slums] are only 8 per cent of the land. The point is, Maharashtra remains underdeveloped and Mumbai remains neglected...

...It is criminal neglect of Mumbai, and it has been by the entire political class. They profited by letting it grow in an uncontrolled way. The mafia took advantage of this and grew from 1975, and is growing today; it is the land mafia that rules Mumbai. And its aim is not to develop but to loot Mumbai. That’s why there is no control, no regulation and whatever exists is violated. Mumbai is used by the rest of Maharashtra… by the so-called rural chieftains who come to rule Maharashtra from Mumbai. Their aim is to develop their constituency at the cost of Mumbai. You will find Baramati and Pune developed because of Sharad Pawar. Latur is developed because of Vilasrao Deshmukh. Sangli is developed because of Vasantdada Patil. But the area between Pune and Sangli via Satara is horrifying. There is total disequilibrium of development within the State. The Maharashtrian political class, including Sharad Pawar, has not paid any attention to how society has been evolving. If you remove Mumbai and Mumbai’s income, then the rest of Maharashtra is worse off than Orissa or Bihar, and this is provable. There is no point in talking about backward Biharis coming to Mumbai because the rest of Maharashtra is worse than Bihar. Mumbai is rich, so Biharis come here to earn, the same way as somebody from Satara comes here."

The point I wanted to make was that any of those current economic powers like Shanghai or London were pathetic themselves a few days or year ago. We have read books written on 'the great stink of London' referring to River Thames, which is currently the most clean river in Europe. They have improved their condition from the filthiest to the cleanest. A couple of centuries ago, the pubic sewers and individual property plumbing was worse than worst. Now they have efficient infrastructure.

If The Economist take pride in saying that they do not report news and they do news analysis, this particular article was of poor quality. It was neither reporting nor it was constructive analysis. It was a desperate attempt to attract the billion plus population - now this is my analysis.

As a common Indian citizen, I feel bad about the current situation, however, the improvement of this is possible through applying lessons learnt at other places.

Yes I agree with your sentiment that as a common citizen one feels bad for the current situation. But it is naive to think that we need to learn lessons from other places to improve things at home. This is simply because there is no political will to improve things thanks to-
-vote bank politics
-'get rich while you can' syndrome that afflicts politicians (remember UP strongman's advice to his ministers some days back?)
-dynastic rule of politicians
-corrupt bureaucracy bereft of even a smattering of shame

That India has the money to improve things is true. But this has almost never translated into successful schemes for the poor or the under developed regions for reasons given above.

One more thing about applying lessons from elsewhere. Like the junket of Karnataka MPs to South America? Or like the visits in the past of representatives from Maharashtra's Urban Development Department to Shanghai?
Let's hope on...

There is nothing wrong in learning lessons from others, or even learning from lessons learnt by others. It is not naive that we cannot learn from others, on the contrary it is unwise not to learn from others. No one has time to learn from beginning - just like you don't have to invent steam engine again and again, however, you need to improve on the current design of steam engine to derive more benefits.

Most of the people would have serious objections to this article because of the way it has been written. The article talks about the current political situation and I feel the judgement is based on the Western values of looking at the things as they appear to be superficially. We, the Indians, are different. This kind of analysis flaunts the names of other editor(s) just to let readers believe that the authors know the local conditions. What is so special about the analysis to promote this article as the top one? Any uneducated person in India can make the comments made in this article.

We, the reader of The Economist, expect something more, better and in-depth analysis. I don't agree fully that the politics only in India has deteriorated and that the politics in other parts of the developed world is setting up great examples and shows a great character.

Why don't you, The Economist, provide in-depth case study comparing Mumbai with cities like Shanghai, London, Karachi, etc. That will make your words more valuable and would probably be read by millions of educated and sensible Indians.

Look at the roads, the governance, the harrows of commuting in the local train (cattle wagons I call them) .... The only thing that I find admirable is the tough Mumbaiite. He is willing to die slogging it out in this stressful environment.

I guess the tough Mumbaite has no other option but roughing it out. So this is not the stoicism that one should admire but a helplessness that deserves to be pitied. I am sick and tired of everyone celebrating the Mumbai spirit, as if Mumbai has consciously chosen to be that spirited.

Yes Deepika. You get hooked to Mumbai because of the money it gives you a chance to make and then you slog and keep slogging your butt off and lead a horrible family life.

Guys, it is better to make lesser money and have a quality life in smaller towns.

But with the mono-rail, metro rail, Eastern freeway, Chembur Scruz link road and developments in New Mumbai (airport and trans harbor creek) may vastly improve commuting conditions. WE are at least a decade behind in infra development in Mumbai.

What a crap article! It clearly appears that the writer is frustrated and only has shallow knowledge about the political situation in Maharashtra. 'The Economist' - have knowledgeable writers in your organisation.

Mr Chavan is clean but helpless like PM Dr Singh.This can't be an excuse.Mumbai is going the way Kolkota went under 30 years of Marxist rule.
As predicted by you [ correctly], Mumbai will be without talent,money and rule of law in next 20 years.Cities like Pune,Nashik,Nagpur,Aurangabad,Satara,Sangli,Kolhapur will [and should]grow at the expense of Mumbai .
When Portugese gifted island of Mumbai as dowry to British royalty, it was a cluster of fishermen's villages.It is scheduled to return to its past, thanks to the causes mentioned by you.

Mr. Chavan might be a shade more sensible than the rest of the lot but his personal integrity does not stop his ministers from running riot all over the state, does it? Chagan Bhujbal has been repeatedly implicated in land scams with no action against him, that's just one example.
Wonder what the CM plans to do with his corrupt lot.

I couldn't find article's writer's name. Don't know why that was kept as a secret. Also, didn't exactly get what this article was aimed at and what point was being made. All that was said, is already known, what a crap...

They never reveal the name of the writer in the Economist. In other newspapers too, for the most part, only opinion editorials are by-lined.
As for the point of this article- to point out that if Maharashtra's politics does not change soon than its decline relative to other states is imminent.

I guess this is the style of The Economist to use their so-called skills of analysis. I do not necessarily agree with their views on many issues. Such articles - not only on specific places but on India in general - just provide us insight into how others might be looking at us. And then I don't know how many "those others" agree with this newspaper.

Bifurcating the state on the lines proposed by Dr. Ambedkar in 1960s, is the only solution. All problems of Maharashtra are due to domination of the state by politicians from Western Maharashtra - who treat the other regions of the state as their colonies. At the very least Mumbai + Konkan should be separated into a state. No amount of heroics from the Prithviraj are going to solve the problems of the state. The money and muscle power of Maratha strongmen from the western ghats is simply too overwhelming and their never ending feuds are taking the state down.

yes it can be,provided Pawars,Thakreys are put to their logical destination i.e HAVE BEEN .Saner element of polity,administration,business, industry,academia,civil society and others should take center stage and bring back probity,broadness &public good in main domain .

Big hypocrite Raj thakhrey is...He replies in Marathi to questions in Hindi and English on news channels.
He must be ashamed of his (lack of English) education and hence with a vengeance sends his children to English speaking schools!!
But his lack of education has made him a leader too!!!